Now that Congress has provided the President with "trade promotion authority,” the way is clear for the 12 nations engaged in the Trans-Pacific Trade (TPP) negotiations to produce a final result. Covering the trade and investment of countries accounting for 40% of world GDP, this will be the largest and most comprehensive, and most consequential trade agreement entered into by the United States since the World Trade Organization (WTO) was created two decades ago.
Why this agreement? A negotiation among the 12 Pacific Rim nations was chosen as a path forward for several good reasons:
One reason is that it is in America's geopolitical interest to stay involved in Asia. The most recent example of waning U.S. involvement was the choice made by the Administration to stay out of the Asian Infrastructure Investment Bank (AIIB), which China will head up, and which has already attracted pledges of contributions from 14 of the 28 members of the European Union, as well as Australia and New Zealand.
A second reason to pursue a regional instead of a global approach is the stalemate in the World Trade Organization (WTO). The 161 member WTO operates by consensus, and at present there is no consensus to move forward on any further new agreements. To create an improved international trade regime, the template for global rules has to be negotiated by like-minded countries outside the WTO, and that is what TPP is accomplishing.
A third reason is that the United States has a commercial interest in opening up key markets further in Japan and Southeast Asia in particular – Japan because it is a very large, mature market; Southeast Asia because of the growing demand from the rising middle-class consumers in the rest of Asia beyond Japan. Most of the world's consumers and producers are outside the United States, and the U.S. economy, as with other countries, is increasingly dependent on foreign markets and foreign supplies. TPP will provide enhanced market opportunities for American businesses, large and small.
Fourth, as TPP is an open architecture, other Pacific Rim countries are welcome to negotiate accession to it. Korea is the most prominent non-party that has expressed an interest in joining TPP, but there are others as well, including the Philippines.
Fifth, TPP can serve as the foundation for progress in the Trans-Atlantic Partnership between the United States and the European Union. Together, these two agreements will govern most of world trade.
Fundamental to any high quality free trade agreement is that all tariffs on industrial products with few exceptions will be phased out (U.S. tariffs are on average very close to that already). While not going to zero import restrictions with respect to trade in agriculture, market access for agricultural products is to be more open. Many services, including notably financial services, will be guaranteed market access for the first time.
Eroding longstanding protection is only one part of the Agreement. New barriers to trade and investment are a menace that must be anticipated. The last multi-party agreements were negotiated before world trade was dominated by the internet, e-commerce, global supply chains and super container (Panamax) ships. TPP is called a 21st century agreement because it addresses comprehensively for the first time issues that have only recently gained prominence.
To ensure that the benefits of trade and investment will be realized, the TPP will break new ground by addressing commercial competition from state-owned enterprises, ensuring continuing freedom of cross-border data flows, providing for the reduction of conflicting domestic regulations, improving the protection of intellectual property rights (including trade secrets), increasing transparency of government intervention in trade, dealing with subsidies that distort trade and investment to an extent never achieved before, and will include important provisions governing labor rights and protection of the environment.
The countries participating in the TPP represent a broad spectrum of levels of development and types of economy. In many instances, a substantial motivation for a country joining the partnership is to help drive domestic economic reforms, so necessary to be competitive internationally.
Congress has given the President the negotiating mandate he needs. The next step after the conclusion of TPP is to gain Congressional acceptance of the agreement. That Congress will approve it cannot be taken for granted. When the text of TPP becomes available, it is imperative that it be viewed objectively without the prejudice that has sprung up that no new trade agreement can promote good jobs. The TPP is in fact an important avenue toward creation of higher wage jobs.
Alan Wolff is chairman of the National Foreign Trade Council and practices law in Washington D.C.